All posts by Jan Kot

Walmart to add 100 Guangdong stores

Walmart intends to add another 100 stores in Guangdong over the next five years, according to a company statement. They will include Sam’s Clubs, shopping malls and shops in residential communities, said the Arkansas-based retail giant, adding that it will also set up cloud-based warehouses for the branches.

Walmart opened its first China store in Shenzhen in 1996, and now has over 400 across the country. In March it completed its largest investment in China to date – a distribution center for fresh foods in Dongguan costing more than RMB700 million, serving over 100 brick-and-mortar shops.

Its newest store format, outlets in residential communities, debuted in Guangdong last year. It also set up a WeChat mini program for home deliveries this year, offering service to doorsteps within an hour of placing an order.

Cross-border e-commerce surges

Guangdong may be weathering a difficult external trade environment, yet growth in one key segment is exploding: cross-border e-commerce. In the first half of this year, imports and exports ordered and shipped via the internet grew 76.8% to RMB43.02 billion. Nearly all went through special bonded zones in Guangzhou, Shenzhen, Zhuhai and Dongguan, where 3,000 enterprises have clustered to take advantage of easier tax and other regulations.

Admittedly, this is still a small drop in the bucket. The province’s overall trade was worth RMB 3.28 trillion in the first six months, up 1.3% year-on-year, accounting for 22.4% of China’s total imports and exports. More than half was accounted for by private enterprises, which saw their trade numbers grow 5.9%, up 2.2 percentage points YoY.

Guangdong FDI rises

Hong Kong may be a worrisome mess, but foreign investment continues to like what it sees in the rest of the Greater Bay Area. In Guangdong, 7,820 new foreign direct investment enterprises were established in the first half of the year, worth RMB83.77 billion, up 5.9% YoY.

One of the highlights came from Fortune 500 company General Electric (GE), which has set up the Asian Biotechnology Park in Guangzhou. It now plans to build a world-class offshore wind turbine assembly base in Jieyang as well as an operation and development center in Guangzhou.

The provincial government has made efforts recently to improving the business environment by introducing an “express lane” for multinational companies to receive approval on projects. As a result, Siemens has signed a comprehensive cooperation agreement with Guangdong, while another 17 major projects have settled here.

Hang Seng jumps into new LPR-based lending market

Now that China has a benchmark interest rate, called the Loan Prime Rate (LPR), Guangdong banks and companies are wasting no time using it.

The LPR is set to be launched today and then published on the 20th day of every month. It will be set based on quotations submitted by 18 commercial banks. The central bank has added eight medium and small banks, including two foreign-funded banks, to the existing list of 10 nationwide banks that are allowed to submit quotations to the previous national one-year LPR.

Although Hong Kong’s lending behemoth, HSBC, was left off the list, its subsidiary, Hang Seng Bank, has already jumped into the fray and launched a tranche of loans to companies in Guangdong based on the LPR. Over 30% of the RMB150 million the bank is handing out will go to private enterprises, encompassing trade financing and revolving credits, according to the bank.

“The private sector is highly active in Guangdong and SMEs’ financing needs are strong,” said Qu Weiquan, head of commercial bank at Hang Seng Bank (China). “Thanks to the openness of Guangdong’s finance market, the financing solutions targeted at these companies have always had more flexibility and the market is more acceptable to the new LPRs.”

According to the state media, under the new system, banks will submit their prices in terms of basis points added to the interest rates on funding they receive from the central bank in the open market to form an LPR, which represents a shift away from the current practice of referring to the more expensive one-year benchmark lending rate.

The move, aimed at lowering borrowing costs for the economy, is considered as a milestone in reforms started four decades ago to loosen state control of the economy.

The banks’ lending interest rates will be linked to the interest rates on the PBOC’s lending to the banks through open-market operations, giving the central bank a way to still affect the cost of borrowing.

The PBOC said the goal of the move is to make the national LPRs a more market-oriented mechanism so as to lower borrowing costs in the real economy.

Some analysts believe the new LPR regime could favor big state-owned borrowers while delivering few benefits to SMEs as looming growth headwinds and financial risks have been making banks more risk averse.

Still, few banks will be able to turn their nose up at the PBOC. Economists from Nomura were quoted by Caixin Global as saying banks may need to do some “national service” by lowering their average loan rates, but they may try to make up for their lower profits by increasing the price of riskier loans to the private sector and SMEs.

Economists at China Merchants Securities also think that if the implicit floor on lending rates is eliminated, the borrowing costs of big companies will probably decline substantially. But more policies will be needed to lower the borrowing costs of SMEs, which are relatively high risk and have little bargaining power.

Report bullish on commercial property

The Greater Bay Area’s long-running boom in commercial real estate is set to continue and expand beyond the main hubs of Shenzhen and Guangzhou, according to a latest report by international consultancy JLL.

This is despite a surge in supply coming onto the market, especially in Shenzhen, where the Grade A office market is expected to almost double, from around 7 million sqm this year to 14 million sqm over the next five years, according to JLL.

The bulk of cross-border real estate investments in the region to date have largely been restricted to Hong Kong, Guangzhou and Shenzhen. These three attracted 85% percent of the total since 2009, JLL says. However, the maturing of investments into the region’s transportation infrastructure will spread this flow to a wider catchment area going forward.

Evergrande boosts talent housing

Evergrande Group, China’s largest developer, has won two residential plots at a government auction in Guangzhou for a total of RMB5.7 billion. The two parcels are less than one kilometer from the industrial site Evergrande acquired in April to build its base for new energy vehicles.

Covering an area of 51,000 square meters, the two parcels are located inside Guangzhou Nansha’s Bonded Port, which is planned for the development of a comprehensive service sector and advanced manufacturing.

Evergrande is required by the local government to build talent apartments on the plots, including a 30-class primary school and a 18-class kindergarten. Upon their completion, the talent apartments will be resold to the organization units designated by Nanshan Development Zone Administrative Committee at the price of RMB3500 per square meter.

Shenzhen launches 5G buses

Guangzhou may have launched the country’s first 5G bus line back in May, but Shenzhen has not been far behind. It now has two routes running from the Lianhua Mountain Bus Terminal – No. 10 and No. 14 – offering a superfast 5G network to passengers on their daily commute through the city’s main business districts of Luohu and Futian. The lines are used by around 12,000 passengers per day on a fleet of 50 buses.

Download speeds inside the buses reach 1.5Gbps, allowing for movies to be downloaded in seconds. However, that is not the main attraction. The 10-meter compartments of these “smart buses” offer “immersive VR travel experiences” as well. With the help of exterior cameras, passengers can have aspects of scenery along the way projected onto the bus screens, with explanatory details included.

Needless to say, the buses also come equipped with onboard cameras running facial-recognition technology. This is being promoted by the bus company as an improvement on safety.

Anthony Neoh parts the waters in HK

When the person overseeing the police on behalf of the public says that a political solution is needed to the city’s unrest crisis, it’s best to take notice. Anthony Neoh, former head of the SFC and a widely respected barrister, is currently head of the Independent Police Complaints Council (IPCC). The IPCC has been given the unenviable task of looking into police conduct during the protests. Thankfully, it has someone like Neoh at the helm.

As Neoh told the SCMP over the weekend, the police cannot be expected to put this protest down. It is political in nature; it needs political solutions. Demanding that the protests end before discussions or reviews can begin is not pragmatic, he points out. As long as the violence subsides, and the trend toward calmer demonstrations is evident, the initiative needs to be seized. This should start with properly acknowledging the spark that set the prairie on fire, the extradition bill, and properly put it out by formally withdrawing it from the Legislative Council.

Read more of his level-headed, common-sensical advice on scmp.com.

It remains to be seen, however, whether Chief Executive Carrie Lam is up to the task at hand. She does appear to have better support now, as the pro-establishment camp has been whipped into line by the HKMAO. But there is still a lot of hard work ahead. Neoh has parted the waters; but will she lead her people to the promised land?

Pardon the exaggerated metaphor, dear readers. But to continue it, to get through the turbulent waters in which Hong Kong finds itself will require more than the right direction. Lam is going to have to come up with some bold initiatives if she wants to show that she really is sincere in addressing the protesters’ grievances.

Here, too, she has had some good guidance from commentators recently. One is by the SCMP’s former editor, Wang Xiangwei. Wang argues that any attempt to address the underlying causes of the protests is going to have to result in taking action against the property barons and other vested-interest groups.

As he says, Lam needs to unveil a bold vision to tackle the “grey rhino” risks long associated with Hong Kong – sky-high property prices, worsening inequality, lack of social mobility for youth, and woefully underfunded social security. Previous chief executives have all talked about it. None has acted.

To do this, Lam must “bite the bullet”, says Wang, and seek the full support of the central government to take on vested interest groups, including property tycoons, the Heung Yee Kuk, and even environmental groups.

If Wang is writing this, it is highly likely that this is, in fact, what Beijing is already thinking. All she has to do is ask.

Read more on scmp.com

GBA Briefs: 8/21/2019

Shenzhen AI: Shenzhen has 636 companies engaged in AI work, according to official data. Most were established in the past five years.

Guangzhou Cruise Port: The new Guangzhou Nansha International Cruise Home Port is set to open on November 17. The passenger terminal is expected to process 750,000 visitors annually. Read more.

Guangzhou Ballet in NYC: Guangzhou Ballet recently made its New York City debut at Lincoln Center with a special performance blending Western and Chinese classics. Read more.

Superman Swoops: Property developer CK Asset, founded by Hong Kong billionaire Li Ka-shing, said it plans to acquire Britain’s largest pub retailer and brewer in a deal worth US$4.6 billion. Read more.

Is HK descending into its own Cultural Revolution?

Hong Kong is being brought to a standstill today, as promised, as shops close and staff either stay at home or don black T-shirts to go out marching in scorching heat. Protesters, police and journalists are just about the only ones carrying on with business as usual. Flights are being delayed or rerouted as airport staff join the citywide strike; buses and MTR services are being severely disrupted; and increasingly violent clashes between protesters and police seem all but inevitable as the hours pass.

The video footage is getting more worrisome. Scenes of a driver ramming through a road barricade are going viral (it is amazing nobody was hurt). Crowds are swelling in shopping malls and streets, and protests are no longer confined to a few places. They are breaking out all over the city, and police forces are thinly stretched. It is all but impossible for established news media to keep on top of everything that is happening.

This is not the Cultural Revolution of 1965-76. That was sheer lawlessness, encouraged and at times directed from the top. But it is starting to feel like it. Communities are splintering. Facebook groups are breaking up. People that went to college or high school together have stopped talking. Parents are losing touch with their kids. It is no longer only an anti-government movement. It is increasingly becoming a counter-cultural movement. Society is being split sharply into Blue and Yellow, with the Yellows standing for radical change and the Blues standing against. No one is talking about principles anymore – only chanting slogans. There is no hope for negotiation. There is no one that can negotiate.

The government is paralyzed. The hapless Chief Executive, Carrie Lam, can do nothing but read out wooden statements at press conferences that no one bothers to watch anymore. One meme trending on Facebook shows TV viewers ticking Bingo cards with her favorite clichés in the blocks instead of numbers.

The police are mostly just running around, chasing the flame, trying not to go nuts, following procedure when they can and cracking heads – sometimes the wrong ones – when they can’t. There are hotheads, and likely worse, among them, but their fear is understandable. Bricks and bars are being upgraded to petrol bombs. Police stations are being attacked. Police families’ living compounds are being pelted by neighbors.

The Hong Kong and Macao Affairs Office, meanwhile, has set the speculation fires burning by announcing it will say “something new” at a press conference tomorrow: Could it be the imposition of a State of Emergency? Are reports of riot police massing at the Shenzhen border, arrayed like stormtroopers from Star Wars, to be believed this time?

There is a palpable sense in the air here that there is no going back. Hong Kong is not just blowing off steam. This all appears to be heading inexorably toward a violent, probably bloody, climax that will surely go into the world’s history books. We hope and pray for a change, but at this stage, a calamitous showdown is starting to look unavoidable.